For the second time in two years, the U.S. Supreme Court upheld a large punitive damage award. In reviewing a case in which punitive damages were 526 times the amount of compensatory damages, the Court rejected arguments that such awards violated the due process clause of the U.S. Constitution.

The Court stressed a punitive award's reasonableness should be considered in determining whether it violated the due process clause. Factors to consider include the amount of money potentially at stake, the bad faith of the party against which the award was assessed and that party's wealth.

Professionals (including CPAs) and business groups had hoped the Court would take this opportunity to establish objective guidelines to determine whether huge punitive awards are constitutionally permissible. But in its ruling, the Court dashed any hope lower courts would have such guidance.

Barring intervention by states on a statutory level, it is likely professionals will continue to see punitive damage awards that are grossly dissproportionate to the compensatory damages awarded a plaintiff. (TXO Production Corp. v. Alliance Resources Corp., U.S. Sup. Ct. no 92-479)

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